Pfizer move to buy Allergan to slash its US tax bill sparks political backlash

A man enters the Pfizer World Headquarters building in Manhattan on Monday.
A man enters the Pfizer World Headquarters building in Manhattan on Monday.PHOTO: REUTERS

NEW YORK (REUTERS) - Pfizer on Monday said it would buy Botox maker Allergan in a deal worth US$160 billion (S$225 billion) to slash its US tax bill, rekindling a fierce political debate over the financial manoeuvre.

The acquisition, which would shift Pfizer's headquarters to Ireland, would be the biggest-ever tax inversion.

The news prompted Democratic presidential front-runner Hillary Clinton to promise to propose measures to prevent the increasingly popular and controversial practice aimed at helping US companies lower their taxes by re-incorporating overseas.

Shares of Allergan and Pfizer fell more than 2 per cent as investors learned the merger, which would create the world's largest drugmaker, would bring lower cost savings than they had hoped. It also would delay a decision by Pfizer on whether it would sell off its division consisting of products facing generic competition.

US President Barack Obama has called inversions unpatriotic and has tried to crack down on the practice.

Senator Bernie Sanders, another Democratic candidate for president, called on the Obama administration to stop the deal, which "would allow another major American corporation to hide its profits overseas".

"Congress also must pass real tax reform that demands that profitable corporations pay their fair share of taxes," Sanders said.

Republican presidential candidate Donald Trump has called for changes in corporate tax rates to keep US companies from moving.

Carl Icahn, the billionaire investor known for picking fights with corporate executives, has said he will put US$150 million into a new super-PAC that would push politicians for changes to the way U.S. corporations are taxed on their earnings abroad.

To avoid potential restrictions, the transaction was structured as smaller, Dublin-based Allergan buying Pfizer, although the combined company will be known as Pfizer Plc and continue to be led by Chief Executive Officer Ian Read.

The US Treasury, concerned about losing billions in tax revenue, has been taking steps to limit the benefits of tax inversion deals, but it admitted last week that it would take legislation from Congress to stop such moves.

It was not immediately clear how many jobs would be lost as a result of the deal, which is expected to close in the second half of 2016.

Allergan CEO Brent Saunders will become president and chief operating officer of the combined company, with oversight of all commercial businesses.

Read, who has long sought to slash Pfizer's US tax rate, said the deal would help put the company on "on a more competitive footing" with overseas-based rivals.

The company had estimated it would pay about 25 per cent in corporate taxes this year, compared with about 15 per cent for Allergan. Pfizer Chief Financial Officer Frank D'Amelio said he expected a combined tax rate of 17 percent to 18 percent by 2017.

The deal comes some 18 months after the failure of Read's initial attempt at an inversion, a US$118 billion bid to acquire Britain-based AstraZeneca Plc that ran into stiff opposition from that company's management and British politicians.